How Does ‘Staking’ Affect the Circulating Supply and Tokenomics of a Cryptocurrency?
Staking involves locking up a portion of a cryptocurrency for a period to secure the network and validate transactions, typically in a Proof-of-Stake system. This action removes the staked tokens from the immediate circulating supply, which can reduce selling pressure and increase scarcity, positively impacting the price.
In return, stakers receive rewards, which are new tokens, making the tokenomics inflationary to the extent of the reward rate. Staking creates a trade-off between reduced circulating supply and increased overall supply.
Glossar
Circulating Supply
Token ⎊ The circulating supply within cryptocurrency contexts represents the number of tokens currently available and actively traded on exchanges or held by investors, excluding those locked in smart contracts, staking agreements, or otherwise inaccessible.
Reduced Circulating Supply
Definition ⎊ Reduced Circulating Supply describes the state where the quantity of a digital asset actively available for trading in the open market has decreased, either through intentional mechanisms or accidental loss.